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If the 2nd Circuit agrees to hear this copyright dispute, it could impact how employees of user-generated-content sites interact with videos and whether popular websites carry pre-1972 music.

A copyright infringement lawsuit against Vimeo, owned by Barry Diller's IAC, has taken another step forward after a federal judge in New York issued a new ruling on Tuesday. Among other developments, the case now looks headed toward an appellate review on two important issues haunting many digital services.

Capitol Records and other big labels are suing the popular user-generated video site for distributed seminal sound recordings by artists including The Beatles, Daft Punk, Radiohead, Beyonce and The Beach Boys. Many of the videos in question are of the "lip dub" variety, showing users who choreographed elaborate lip-synching spectacles to popular music.

Last September, U.S. District Judge Ronnie Abramsreviewed 199 videos in contention and found that Vimeo was entitled to summary judgment on 136 of them. Of the videos remaining, the judge ruled in plaintiffs' favor on 20 videos and held off on judgment on 43 videos.

The summary judgment ruling came after an analysis over whether Vimeo had awareness of facts or circumstances from which infringing activity was apparent. Such awareness would disqualify Vimeo from having safe harbor from copyright liability.

Some videos evidenced great employee interaction and others did not. After the judge set the standards by which to determine Vimeo's liability, the defendant moved for reconsideration on some of the videos still in contention. This week, Judge Abrams gave Vimeo wins on 17 additional videos. On the other hand, the judge denied reconsideration on the others and allowed the record companies to file an amended complaint to add more videos to the dispute.

Two things from the most recent ruling (read here) are perhaps more important than the exact number of videos potentially subject to a jury trial.

First, the judge had to consider whether a jury could conclude after hearing about employees who watched certain videos, whether it was "objectively obvious" that the videos were of an infringing nature. Some of the videos might not have been obvious because the employee could have believed that the creator had made a "fair use" of copyrighted material. A couple of the videos fell into that category, but instructive are 18 videos being passed on to a jury.

"One of these eighteen videos, titled 'Christina Aguilera-Genie in a Bottle,' is a full-length video showing the artist performing her popular song at a concert, with the location and date of the concert displayed on the web page below the box where users can watch the video," wrote the judge. "Many of the other videos are 'lip-dubs,' showing individuals walking through their homes or offices -- or, in one case, driving a car -- mouthing the words to a copyrighted song while it plays. All of the videos play, in essentially unaltered form, what a reasonable jury could deem recognizable songs by well-known artists."

In other words, the judge says that "lip-dubs" aren't necessary a fair use.

The other big news from Judge Abrams' latest ruling is her certification of an interlocutory appeal. She will allow Vimeo to ask the 2nd Circuit Court of Appeals to consider whether a service provider's viewing of a user-generated video containing a copyrighted song gives rise to "red flag" knowledge of infringement. If the appellate circuit grants the appeal, it'll mean further clarification of the issues explored in Viacom vs. YouTube. Resolving the issue "will have far-reaching implications in this case and others," writes the judge.

The judge also certified an interlocutory appeal on the question of whether the DMCA's safe-harbor provisions are applicable to pre-1972 sound recordings. More and more digital services are being sued over these older recordings, and because sound recordings didn't fall under federal copyright protection until Feb. 15, 1972, service providers have been alarmed to learn that they might not be able to rely on the protections for them in federal copyright law. That would mean they couldn't just sit back and wait for takedown notices on pre-1972 songs.

The Vimeo case has been stayed pending a determination by the 2nd Circuit.

Many digital companies including Google and Pandora will likely be watching whether the safe harbor provisions of copyright law do or don't extend to pre-1972 recordings. The judge notes, "This issue is a question of first impression in the Second Circuit."